Best Thread Other Side of the Screen

[LLSS]

Manipulation

Evening all,

Quite a lot to get through on returning so I will try to cover most people's questions by grouping them together. The biggest theme emerging is relating to manipulation so let me clarify a few things and answer a few Questions.

"I don't think thats totally true , its not illegal to quote the price you want on a SB market , after all we're trading your market not the DOW cash , there is no such market as DOW cash anyway , not to mention the after-hours markets quoted by SB brokers like the DAX and FTSE , i have seen questionable moves in the FTSE after the futures close while there was no such move in the US futures" - Tar

Well it depends on what would call 'real' I suppose, but the DOW Cash market is a legitimate and recognised product sold OTC that is priced on the future - fair value. Sure it is not on exchange but it is offered by market makers of all sizes, from your local bucket shop to a multinational bank. You are also right that the price is 'created' by the person offering the product, but what I meant in my original post was that we could not get away with price manipulation in the sense that we could push price above where the 'market' is.

To further explain. When pricing any of our products, we receive a feed from several banks, large brokerages and other market makers. The prices are then averaged out across them all to give smoother price feeds. This service is provided by a specialist company and any investigation into our pricing strategies would be easily traceable. How could we explain to the FCA a spike in our prices and charts that is not coherent with our feed?

 

[LLSS]

Manipulation Cont'd

"Anyone trading over the counter products, no matter if Goldman Sachs is oyur counterparty or a regular bucket shop, anyway, anyone trading products not traded on a regulated exchange, is never going going to get the real prices others get who trade on real markets." - BSD

Yes and no. Someone as big as GS or RBS can price their products independently, but they will usually be pretty much in line with everyone else otherwise arbitrage opportunities would present themselves too easily. The only thing that could affect your price is if during the middle of the night GS have someone load up with them causing a price spike; If they are one of the banks used in the feed then the average price will skew slightly. Unfortunately this is part and parcel when trading the markets and why many short term traders will never hold positions overnight. As a firm with capital larger than I presume anyone here, even we reduce exposures overnight and even more so on weekends. Black Swan events can ruin you, a rule we have is never go into the weekend short Oil !!

To answer related questions this response is basically spot on:

"of course it's a made up market - that is the very nature of speculating with derivatives; for which, spreadbetting could indeed be argued as just another form of derivative speculation, albeit one with certain advantages & disadvantages too. Though, for me personally, as things currently are, the advantages outweigh the disadvantages.

But I would submit this point: what usually keeps spreadbetting firms prices as close as possible to the real market is (1) competition among firms, and (2) arbitrage opportunities if prices get too out of line. They may be technically able to "freely make it up as they go along" as you argue, but the day to day reality is, and I've plenty of years seeing that very reality, they almost always don't stray far from a given underlying instrument. Still, if ever such has happened to me (& rare has it been) then a simple phone call to question any 'wild pricing' has usually resolved matters. Meanwhile, the usual initial (or first point of contact) 'price to pay', in today's competitive marketplace, for the advantages of spread-betting is - wider spreads."

Like I said, when trading an OTC product it is based on supply and demand, we offer you a price, you decline or accept. However customers usually get such good prices nowadays because competitions is fierce and technology allows people to gain access to the best deals easily. We mainly deal with CFD products and do not offer any cash products. CFD's are based on the underlying markets with a wider spread to compensate for commissions you normally pay a broker and also the fact we want to beat your prices when hedging

 

[rsh01]

As for the theory that brokers or banks move markets to hit YOUR stops, that’s ridiculous.

hmm, this is an excerpt of interview of paul rotter, (in)famous prop trader trading on the eurex bund/bobl/shatz.......

http://www.trading-naked.com/paul_rotter.htm

q: as a scalper, are you trying to run stops?
a: well, yes, but because of the increase of liquidity in the last couple of years, the fast spikes caused by stops are not happening that often anymore. apart from that, that stops often are not where you would suppose them to be, because the other market participants are not silly either or learned their lesson in the past.

so a prop trader's edge was (granted it was temporary edge) to trigger stops, but brokers/banks et al dont bother?

Citi have just been found out for front running clients re Eq.....but triggering stops is a no go?

JPM/UBS/Barclays et al for fixing libor, commods, fx / Total & JPM (Enron prior) for fixing energy / dark pools / MF Global stealing clients funds....i can go on & on.....but stops are a no go....for ethical reasons perhaps?

for real?

 

[rsh01]

And to finish Paul Rotter admitted a few years ago in an interview that he ran stops. It can be done you just need the right size for the right market conditions.

Humans with lots of money and with the ability to make a lot more money = Greed.

That's all it boils down to.

re my post on the rotter, didnt realise you had referenced also.....gd reference sir.

 

[LLSS]

Stop Hunting

When I discussed 'stop hunting' and the problems with us doing it, some of you mentioned banks doing it and Paul Rotter came up. I would like to distinguish the difference between unfairly being hit on stops, and normal market behaviour.

My initial response was aimed at trying to quash the perception that if your stop gets hit 'it's the broker or MM after your money and they are stealing from you by making prices spike'. I am not saying this doesn't happen, but it's just rare in well regulated environments.

FXCM was used as an example, and I could say that the fines imposed probably sent the right message out to everyone else. $2m is a lot of money, no matter how big your business, especially after you consider costs and expenses. This type of action certainly sends out a message. Slippage/re-quotes during volatility is normal however and I genuinely will re-quote clients in their favour as well as against them, strangely though I only have clients query me on the ones that go against them. I usually only re-quote if their price is outside of the spread though which is acceptable under the FCA.

As for tactics deployed by individuals such as Paul Rotter, essentially your complaint lies with market behaviour rather than anything to do with your broker. Professional traders now how the average Joe thinks, and despite being an average Joe myself, I am actually starting to see things for what they are. When we are selling, someone with deep pockets is 'picking up a bargain' in their eyes. Paul Rotter aka the flipper uses a tactic that worked so well, by baiting in buyers and sellers with the lure of large orders. There is nothing wrong with his actions and he is actually one of my favourite traders, the psychology he used to gain an advantage over his peers is fantastic!

 

[LLSS]

hmm, this is an excerpt of interview of paul rotter, (in)famous prop trader trading on the eurex bund/bobl/shatz.......

http://www.trading-naked.com/paul_rotter.htm

q: as a scalper, are you trying to run stops?
a: well, yes, but because of the increase of liquidity in the last couple of years, the fast spikes caused by stops are not happening that often anymore. apart from that, that stops often are not where you would suppose them to be, because the other market participants are not silly either or learned their lesson in the past.

so a prop trader's edge was (granted it was temporary edge) to trigger stops, but brokers/banks et al dont bother?

Citi have just been found out for front running clients re Eq.....but triggering stops is a no go?

JPM/UBS/Barclays et al for fixing libor, commods, fx / Total & JPM (Enron prior) for fixing energy / dark pools / MF Global stealing clients funds....i can go on & on.....but stops are a no go....for ethical reasons perhaps?

for real?

Once again you are referring to market participants that I have no operational knowledge of. I am offering a perspective of a market maker and cannot comment on what the whales of the markets do to win, at the end of the day we are not outside of their cross-hairs.

 

[sonofcablemonster]

I would like to distinguish the difference between unfairly being hit on stops, and normal market behaviour

This is the critical point here.

 

[LLSS]

"I got a couple of other questions when you have time.
1) Why do non DMA brokers generally dislike scalpers?
2) The folks who do do well, is there any pattern to how they trade? ie do they generally use limits,trade with/against major trend, big stops, little stops, no stops etc"


Hi Darktone,

1) It could be a combination of things. We offer both, but the allure of a normal client over one we have to place on DMA is that there are greater opportunities to make money from clients who are on our book that we can manually hedge. Making money from DMA requires large volumes per day. Another reason is that often clients demand low spreads and no comms but want to scalp, trying to take 2 pips every time. This is the reason why on DMA you are free to do it, but comms usually negate an 'easy' pickings.

2) Let me get back to you on this one as it's 1am and I have to be in the office fairly early tomorrow and I would like to give a detailed response which will require some thinking. Let me say this though, the best traders I see are those who have strong risk management and who know when to take a loss. They often only trade a few select markets and make trades that, when you see them, make so much sense yet I would find it hard to pinpoint how they see it in amongst the noise of the markets.

Until tomorrow,

LLSS

 

[tar]

Evening all,

Quite a lot to get through on returning so I will try to cover most people's questions by grouping them together. The biggest theme emerging is relating to manipulation so let me clarify a few things and answer a few Questions.

"I don't think thats totally true , its not illegal to quote the price you want on a SB market , after all we're trading your market not the DOW cash , there is no such market as DOW cash anyway , not to mention the after-hours markets quoted by SB brokers like the DAX and FTSE , i have seen questionable moves in the FTSE after the futures close while there was no such move in the US futures" - Tar

Well it depends on what would call 'real' I suppose, but the DOW Cash market is a legitimate and recognised product sold OTC that is priced on the future - fair value. Sure it is not on exchange but it is offered by market makers of all sizes, from your local bucket shop to a multinational bank. You are also right that the price is 'created' by the person offering the product, but what I meant in my original post was that we could not get away with price manipulation in the sense that we could push price above where the 'market' is.

To further explain. When pricing any of our products, we receive a feed from several banks, large brokerages and other market makers. The prices are then averaged out across them all to give smoother price feeds. This service is provided by a specialist company and any investigation into our pricing strategies would be easily traceable. How could we explain to the FCA a spike in our prices and charts that is not coherent with our feed?

A lot of misinformation in this post alone , but thanks :

@manipulation : This shows mate that you didnt understand what we are talking about its not really manipulation its your market , ie . there is no FTSE cash , especially after 9 pm .

@DOW cash feed : The feed is derived from the futures++ but there is no bank feed for DOW cash , is there a bank feed for FTSE cash ? NO , the product is offered all day long even when the futures are closed , i gave you a screen shot showing a big move in FTSE cash after 9 pm while the futures are closed and the US futures didn't even move ! Thats why they call the DOW = Wall Street , is there a market called Wall Street ? NO , and the DAX is called Germany 30 . And that's why sometimes there is a difference between SB brokers quotes .

@FCA : The FSA/FCA is the worst , they don't do anything until its over , at the time NFA was fining many US fx brokers the FCA didn't do a thing , maybe because such practices is not defined as "illegal" , example : UK SB brokers are allowed to put "a client" on dealer this for example is not really illegal .

Thats your original post which i replied to , which is incorrect ofcourse :

I also was referring to a strictly regulated broker/MM (UK - FCA). If we ever pulled a stunt like that where we moved the markets to a price they never reached (taking spread into account) then we would have our a**e handed to us, that just wouldn't happen, especially as it's easy to prove.
.

 

[kalott]

"ASIC alleges that between September 22, 2011 and March 27, 2012, Mr. Watts entered into CFD positions in relation to Austpac Resources NL that caused 302 trades of APG shares on the ASX, which had the effect of creating a false or misleading appearance with respect to the price for trading in APG shares."

"Mr. Watts could be subject to a maximum penalty of $495,000, 10 years imprisonment, or both."

http://forexmagnates.com/asic-censures-cfd-trader-via-magistrates-court-for-market-manipulation/

 

[BSD]

Well it depends on what would call 'real' I suppose, but the DOW Cash market is a legitimate and recognised product sold OTC that is priced on the future - fair value.

Mate, nothing sold OTC is legitimate and recognised by anyone apart from the the people selling that.

And the hard fact is that OTC products that have no hard counterparts in the real world are NOT priced on the future, fact is prices of bucket shops - including the Royal Bank of Scotlands now shut down Marketindex platform which I witnessed live myself - fluctuated SO FAR from the what was happeining in the futures markets it was downright criminal !

As Warren Buffet correctly said, derivatives not based on any underlying - and sorry, price fluctuations of your guys so-called in reality non-existent "cash markets" of up to 100 points, as RBS regularly did, from the regulated futures markets, render any alleged connection completely and utterly meaningless - are weapons of mass destruction for the parties buying em.

I stand by my offer of quoting anyone anytime the realtime live FDAX and FGBL Bund prices I'm watching during the day to compare what's really going down in the real world.


The foreign exchange market (forex or FX) is an unregulated global market in which trading does not occur on an exchange and does not have a physical address of doing business. Unlike equities, which are traded through exchanges worldwide, such as the New York Stock Exchange or the London Stock Exchange, foreign exchange transactions take place over-the-counter (OTC) between agreeable buyers and sellers from all over the world. This network of market participants is not centralized, therefore, the exchange rate of any currency pair at any one time can vary from one broker to another.

It is possible for market makers to manipulate currency prices to run their customers' stops or not let customers' trades reach profit objectives. Market makers may also move their currency quotes 10 to 15 pips away from other market rates.

---

The Business Trial Group of Morgan & Morgan, P.A. filed a class action lawsuit today against Forex Capital Markets, LLC (FXCM) (NYSE:FXCM) alleging fraud and racketeering by the nation's largest Forex dealer.

The lawsuit, filed in the United States District Court for the Southern District of New York (Manhattan Division), alleges that FXCM has bilked thousands of customers out of hundreds of millions of dollars using deceptive and unfair trade practices, including falsely portraying its Forex trading platform as a fair, transparent and true foreign currency exchange, when instead it is a "rigged game" designed to systematically separate customers from their money.

Sanders alleges, FXCM uses a number of devices and tricks, including software applications, designed specifically to interfere with customers' trades.

The Complaint further alleges that FXCM engaged in a pattern of racketeering activity by collaborating with its software developers and programmers to develop a "diabolical" software application that provides FXCM with a myriad of tools and system commands with which to interfere with customers' trades


THAT is the reality of what goes down when you enter the murky world of OTC products, those firms weren't set up to make the customer rich, those firms weer set up to make money for the founders.

Lol, edited to add:

IF these bucket shops were fair, honest and transparent, why on earth would they create this smoke and mirrors of letting customers trade prices of in reality non-existent cash market ?

Only and exclusively so no one can can monitor their prices for validity.

IF they had the customers interests at heart they'd simply mirror and offer their customers the exact futures prices, would be the easiest thing in the world.

Just ask yourselves that.

 

[LLSS]

A lot of misinformation in this post alone , but thanks :

@manipulation : This shows mate that you didnt understand what we are talking about its not really manipulation its your market , ie . there is no FTSE cash , especially after 9 pm .

@DOW cash feed : The feed is derived from the futures++ but there is no bank feed for DOW cash , is there a bank feed for FTSE cash ? NO , the product is offered all day long even when the futures are closed , i gave you a screen shot showing a big move in FTSE cash after 9 pm while the futures are closed and the US futures didn't even move ! Thats why they call the DOW = Wall Street , is there a market called Wall Street ? NO , and the DAX is called Germany 30 . And that's why sometimes there is a difference between SB brokers quotes .

@FCA : The FSA/FCA is the worst , they don't do anything until its over , at the time NFA was fining many US fx brokers the FCA didn't do a thing , maybe because such practices is not defined as "illegal" , example : UK SB brokers are allowed to put "a client" on dealer this for example is not really illegal .

Thats your original post which i replied to , which is incorrect ofcourse :

Thanks for the reply and input. I think you are right maybe there was a misunderstanding. From what you wrote I thought you said there is no such thing as a cash product. I think there is, seeing as people can trade it. Of course it is priced by the market maker themselves but that is the business. If you want something 'real' why not trade futures? Why do you trade the cash product if you think it is easily manipulated?

As I also mentioned, we do not offer cash products, so my knowledge of how it's priced by each broker is different but the way I was told was it was simply the future price - fair value, or just the combined price of each share in that index evenly weighted. I did see your chart and looked it up, as it's from 2009 I couldn't get any QR for it or find information on the volume traded, but I did get a screenshot of it and it showed a large gap upwards.

@BSD I understand your point, but to be fair most traders out there are quite uneducated when it comes to the markets. Your average Joe just wants to trade and wants to trade 24/7. As we offer futures we often get calls asking why certain markets are closed, especially concerning bullion markets during the trading breaks. I have even had people demand I trade for them when markets are closed. At the end of the day this is the market and the businesses are providing what the majority of customers want. The more educated trader may intraday trade the cash market to take advantage of lower spreads, or if they wish to hold it for a prolonged period they are likely to take the futures CFD contract.

As for the FSA/FCA doing nothing, that is your opinion and that is fine, but I'm not one for taunting a bull. They often come down quite hard on people in my opinion and this reputation is enough to keep us in line at least.

 

[LLSS]

2) The folks who do do well, is there any pattern to how they trade? ie do they generally use limits,trade with/against major trend, big stops, little stops, no stops etc"

2) Let me get back to you on this one as it's 1am and I have to be in the office fairly early tomorrow and I would like to give a detailed response which will require some thinking. Let me say this though, the best traders I see are those who have strong risk management and who know when to take a loss. They often only trade a few select markets and make trades that, when you see them, make so much sense yet I would find it hard to pinpoint how they see it in amongst the noise of the markets.



Hi Darktone,

Let me build on this a bit. Successful traders can vary in their methods, I have seen some who are quite successful trading ranging markets, and others who can take advantage of trends. Then there are those who can do both successfully.

As I previously stated, one thing that they all have in common is good risk management. They know when a move is going against them and they know that if it's not working it's better to close out and start again. They also know good levels to take profit. They will often have a TP set above a level. They close out and wait to see how price reacts at this level, and will then re-enter depending on the move. Even though it seems simple enough, this has seen them make good money where others waited for the break or got greedy.

Most will trade specific markets. We have one trader who only trades Crude and he is most active ahead of US inventories. He often plays the ranges before and after, but will hardly ever remain in a trade through the figure.

Another thing I have learned concerns risk:reward. It always makes sense to have a reward greater than the risk when making a trade. You want to take out more than you will put in. I used to only consider the entry and where to place my stop. Once I had these two things sorted I would then consider my exit, which was solely based on making more than I was putting on the line. It had to be greater than my risk. This would hamper my trades though, because sometimes my TP would be past a level and would get close, but never quite reach it. What I learnt was, knowing where to exit is as important as the entry and that if you cannot exit the trade with a good R:R and will face resistance at a level before your TP then perhaps the entry is not good enough and you should wait it out. Sometimes you will miss out on a good trade, but you will likely save yourself more money in the long run.

These are a few examples of what I have seen/learnt. There are many ways to trade and as we all hear a lot, what works for some will not work for others, but being patient and having good money management are certainly key.

 

[BSD]

I believe that is another misinformation you're putting out.

The FSA is as I understand it not responsible for spreadbetting, as for them that's betting and not trading, and you guys are bookies to em, and that's why the Royal Bank of Scotland never had to fear any consequences when they were misrepresenting prices by up to 100 points on their now closed due to their financial problems Marketindex CFD platform.

The FSA is a waste of time where spreadbetting is concerned because you are "Betting" and not classed as "Trading".

 

[LLSS]

I believe that is another misinformation you're putting out.

The FSA is as I understand it not responsible for spreadbetting, as for them that's betting and not trading, and you guys are bookies to em.

The FSA is a waste of time where spreadbetting is concerned because you are "Betting" and not classed as "Trading".

I do not work for a spread betting firm, so the misinformation is on your part. We offer CFD's and customers pay CGT with us.

Regards,

LLSS

 

[BSD]

CFD's are also not trading but betting, hence the FSA is still not responsible, which is why the Royal Bank of Scotland could for years misrepresent prices on their, umm, CFD platform, and get away with that.

If there were an honest CFD or spreadbetting broker they wouldn't need to hide behind a made up market where no one can control or check what the real prices are, they'd simply be fully transparent and quote the exact prices of the regulated futures markets.

And that's the exact reason why all this nonsense of CFD's and spreadbetting and whatnots is illegal in the USA.

Regards to you too, you're probably a nice guy I'd have a beer with any day, but unfortunately in the wrong employment.

;-)

 

[tar]

As I also mentioned, we do not offer cash products, so my knowledge of how it's priced by each broker is different but the way I was told was it was simply the future price - fair value, or just the combined price of each share in that index evenly weighted.

OK

As I previously stated, one thing that they all have in common is good risk management. They know when a move is going against them and they know that if it's not working it's better to close out and start again. They also know good levels to take profit. They will often have a TP set above a level. They close out and wait to see how price reacts at this level, and will then re-enter depending on the move. Even though it seems simple enough, this has seen them make good money where others waited for the break or got greedy.

Most will trade specific markets. We have one trader who only trades Crude and he is most active ahead of US inventories. He often plays the ranges before and after, but will hardly ever remain in a trade through the figure.

.

So they told you to keep a close eye on winners ?

 

[tar]

BSD

CFDs and SB are regulated by the FSA/FCA , however fixed odds and binary bets are not ...

If there were an honest CFD or spreadbetting broker they wouldn't need to hide behind a made up market where no one can control or check what the real prices are, they'd simply be fully transparent and quote the exact prices of the regulated futures markets.


;-)

You can trade futures with these brokers as well , they do offer both cash and futures but with wider spreads ...

 

[peakoil]

@ BSD Some questions for you please, if I may. I noted you said this: "And that's the exact reason why all this nonsense of CFD's and spreadbetting and whatnots is illegal in the USA."

You do realise that that's because the USA has great issues allowing adults to gamble online with their own money, in ANY form. Would you say that it's good that adults aren't allowed play poker for money online in the USA too? Do you believe that they are right and that other countries should follow?

Or is it just spreadbetting and CFD's that you deplore? Do you approve of some forms of gambling, and not others? Or do you feel all gambling is nonsense or even wrong? Are you one who believes that the state should protect adults from the alleged 'evils' of gambling?

Please elaborate as I'm interested in how you've come to your views. Thank you.

 

[BSD]

They may be regulated by them in theory, but they ain't doing anything are they.

I mean honestly, RSB and up to a 100 points off, what's that all about then.

Regulated on paper they may be, but ain't nothing happening in the UK, unlike in the US where they do go after bucket shops.


The Business Trial Group of Morgan & Morgan, P.A. filed a class action lawsuit today against Forex Capital Markets, LLC (FXCM) (NYSE:FXCM) alleging fraud and racketeering by the nation's largest Forex dealer.

The lawsuit, filed in the United States District Court for the Southern District of New York (Manhattan Division), alleges that FXCM has bilked thousands of customers out of hundreds of millions of dollars using deceptive and unfair trade practices, including falsely portraying its Forex trading platform as a fair, transparent and true foreign currency exchange, when instead it is a "rigged game" designed to systematically separate customers from their money.

Sanders alleges, FXCM uses a number of devices and tricks, including software applications, designed specifically to interfere with customers' trades.

The Complaint further alleges that FXCM engaged in a pattern of racketeering activity by collaborating with its software developers and programmers to develop a "diabolical" software application that provides FXCM with a myriad of tools and system commands with which to interfere with customers' trades


NEVER heard anything similar happening in the UK. FSA seem to be fast asleep at the wheel.

Hey, I'd go have a beer with her too any day.